Dow Jones Futures: Market Rally Keeps Rising, But Here’s Why The S&P 500 Could Pause

Dow Jones futures edged lower overnight, along with S&P 500 futures and Nasdaq futures. A strong stock market rally on Tuesday morning faded and became briefly mixed after Russian missiles reportedly hit Poland.




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Target (TGT) news Wednesday morning earnings, while chip giant Nvidia (NVDA) looms large on Wednesday evening.

The stock market rallied on Tuesday morning with another tame inflation report. Walmart ( WMT ) earnings also helped. So Warren Buffett’s Berkshire Hathaway revealed it had taken a big new position Taiwan Semiconductor (TSM).

The major indexes pared gains somewhat, but then quickly turned mixed on the reported Russian missile news. But the Dow recovered to turn positive again.

Poland Missile Attack

By mid-afternoon, stocks were reeling on reports that Russian missiles had hit Przewodow, a Polish town just over the border from Ukraine. The missiles reportedly killed two people. It is possible that Russian missiles strayed from targets in Ukraine, or that Ukraine’s military shot the missiles down and landed in Poland. On Tuesday, Moscow launched massive attacks against Ukrainian cities.

Russia has denied any responsibility. Poland said the strike appeared to be an “isolated incident.”

Hitting Poland on purpose would be extremely dangerous. All NATO members are committed to defending all other members against attack. NATO ambassadors will meet on Wednesday morning for an Article 4 consultation, not the more aggressive Article 5 defense provision. But a much wider conventional war would increase the risks of nuclear weapons, creating an existential threat to the world and, of course, the stock market.

Barring the Poland missile attack news, the market rally could be a pause after a strong run and the S&P 500 nears key resistance.

Still, MercadoLibre (MELI) and Pure storage (PSTG) approved buy points on Tuesday, although PSTG shares supported the official entry for a second straight session.

Retail earnings

Target, Lowe’s (LOW) and TJX Cos. ( TJX ) reports earnings early Wednesday, along with October retail sales. It follows Dow Jones giants Walmart and Home Depot (HD) earnings early Tuesday. WMT stock jumped 6.5% on strong earnings, guidance and a big buyback, breaking out of a handle buy point. HD stock climbed 1.6%, trying to forge a handle.

TGT stock rose 3.6% on Tuesday, but hit resistance at the 200-day line, near a lower base buy point. Lowe’s advanced 2.15%, works on a lower base handle. TJX stock climbed 2.9%, still in range of a 10-month cup-and-handle base.

Nvidia reported Wednesday night. Nvidia stock rose 2.3% on Tuesday, adding to big gains over the past month, which boosted the chip sector. Strong earnings and guidance from Nvidia, as well as from chip equipment giant Applied material (AMAT) on Thursday night, will be important for the sector and broader market rally.

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The video embedded in this article discusses Tuesday’s market rally and analyzes MELI stock, Pure Storage and Albemarle (ALB).

MercadoLibre stock joined IBD Leaderboard and was Tuesday’s IBD Stock of the Day. ALB stock is on the Leaderboard watch list. MercadoLibre and PSTG stocks are on SwingTrader. Pure Storage is on the IBD 50.

Dow Jones Futures Today

Dow Jones futures fell 0.1% versus fair value. S&P 500 futures fell 0.1% and Nasdaq 100 futures lost 0.1%.

Amazon.com ( AMZN ) began cutting corporate and tech workers on Tuesday, according to LinkedIn posts from affected Amazon employees. The e-commerce and cloud computing giant is reportedly planning to cut 10,000 jobs. AMZN stock fell 1% overnight.

On Tuesday night, former President Donald Trump launched his 2024 bid for the White House.

October retail sales are due at 8:30am ET. Economists expect the Commerce Department to report a gain of 1%, or just 0.2% excluding autos and gas.

Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.


Join IBD experts as they analyze active stocks in the stock market rally on IBD Live


Stock market rally

The stock market rally opened strongly as the producer price index came in lower than expected, with core PPI flat from September. Walmart earnings also helped. TSM stock soared 10.5% on Tuesday night’s news that Warren Buffett had taken a stake. Buffett’s Berkshire also took new positions in as well as new interests Louisiana-Pacific (LPX) and Jefferies (JEF).

But the major indexes pared gains, with the Dow briefly turning negative on the report of Russian missiles hitting Poland.

The Dow Jones Industrial Average rose 0.2% in Tuesday’s stock market trading, even with WMT shares and Home Depot providing a boost. The S&P 500 index climbed 0.5%. The Nasdaq composite rose 1.45%. The small-cap Russell 2000 rose 1.5%.

The 10-year Treasury yield fell 7 basis points to 3.8%. The US dollar also fell.

US crude oil prices rose 1.2% to $86.92 a barrel after briefly rising more than 3% on the Russian missile news. Natural gas futures rose 1.7%.

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ETFs

Among the top ETFs, the Innovator IBD 50 ETF (FFTY) is up 1.4%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 2.3%. The VanEck Vectors Semiconductor ETF (SMH) rose 3.15%, with Taiwan Semi and Nvidia’s stock major components, along with AMAT.

SPDR S&P Metals & Mining ETF (XME) climbed 0.85%. SPDR S&P Homebuilders ETF (XHB) advanced 2.1%, with HD shares and Lowe’s both significant holdings. The Energy Select SPDR ETF (XLE) was up just over 1% and the Financial Select SPDR ETF (XLF) was up 0.2%. The Health Care Select Sector SPDR Fund (XLV) fell 0.1%.

ARK Innovation ETF ( ARKK ) rose 2.7% and ARK Genomics ETF ( ARKG ) was just above breakeven, reflecting more speculative story stocks.


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Stocks Near Points of Purchase

MELI stock rose 6.4% to 1,020.68, clearing a 1,018.10 cup-with-handle buy point. MercadoLibre’s volume was below normal, but the recent consolidation saw a number of gains on above-average volume. The Latin American e-commerce giant is enjoying strong earnings growth.

PSTG stock rose 1.6% to 31.56. Intraday Pure Storage reached 32.47, clearing the 32.07 cup-and-handle buy point for a second straight session, but failed to close above that entry, according to MarketSmith. PSTG stock did finish well with an early entry of 32.57.

The data storage firm is also enjoying strong earnings growth.

Market Timing Analysis

The stock market rally got off to a strong start on Tuesday, with a boost on the PPI inflation report. But the major indexes backed off intraday highs, then turned mixed on reports of the Poland missile attack.

Perhaps the inflation/Fed narrative has shifted. But that doesn’t mean the major indexes can’t hit resistance, especially after a strong recent run. And, as Tuesday’s action showed, there’s always the potential for geopolitics or other wild cards to upend a market trend.

The Dow Jones and Russell 2000 both surpassed their 200-day moving averages. The S&P 500 is nearing the 200-day line, where it hit powerful resistance on August 16.

The Nasdaq is moving from its 50-day to its 200-day line, but has a long way to go.

In particular, the Invesco S&P 500 Equal Weight ETF (RSP) is just above its 200-day line. The Direxion Nasdaq-100 Equal Weighted Index ETF (QQQE) is getting to that important long-term level.

Of course, just because one can argue that the major indexes are “due” for a pause or a pullback or a bounce, and the market will do what it’s going to do.

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Tech giants are making a comeback with the market, but are certainly not leading the way. Many titans hit bear market lows last week. The one semi-exception is Nvidia stock, which has rallied over the past month. But even the chip giant is still working toward its 200-day line.

However, many sectors are showing strength.

Solar, networking, contract electronics manufacturers and several medical products firms are doing well. So are a select number of slides, with several others trying to set up. A bunch of housing-related stocks look interesting, from builders to suppliers to housing retailers.

Other retailers that look good including WMT stock, BJ’s Wholesale (BJ) and Ulta Beauty (ULTA). BJ’s reports Thursday.

Trucking companies are rallying as investors bet the worst is over, or at least priced in, for shipping stocks.

Biotech and health insurers have stalled or pulled back, but are generally in decent shape. Energy stocks are also doing well, although many look stretched.


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What to do now

The major indexes look strong, more stocks are flashing buy signals and setting up. Inflation data may have reached an inflection point, raising the prospect of a slowdown in Fed rate hikes and — perhaps — an end to tightening in the not-too-distant future.

Investors should therefore benefit from the current market rally. But they want to be careful about how much they add in the short term, given the possibility of a market pullback or resistance.

Don’t chase extended stocks. Be wary of buying stocks that are significantly extended from their 50-day moving averages, even if they are in official buy zones. Don’t be too concentrated. A portfolio focused on lithium stocks like Albemarle would have been burned on Tuesday.

But work on those watch lists, stay engaged and be ready to take action.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter @IBD_ECarson for stock market updates and more.

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